These companies drive change by meeting customer demands, as consumers increasingly demand insurance is delivered in a way that suits them – digital services that are quick and easy to use.
The record investment is partly being driven by major insurance companies that are struggling to innovate their operations and services. Bigger businesses tend to find innovation more challenging than smaller, agile companies. Adaptability is now key, and startups can move extremely quickly compared to large corporations, which gives them a huge competitive advantage. In addition, the COVID-19 pandemic encouraged an acceleration of digitization across many industries, which has played into the hands of both startup and scale-up insurtechs and their clients.
Parallels with other industries
There are parallels here with other industries and the pattern of agile and innovative startups leading the way for major players in the insurance marketplace matches the trends seen in the telecom market.
Telecom operators have engaged with startups for several years to profit from their agility, disruptive power and execution speed. One such telecoms operator is Telefonica, which works directly with startups through Wayra, its Open Innovation Hub. Wayra offers access to networks, capital and corporations to help scale telecom startups. Wayra emerged from Telefonica’s understanding that it did not innovate as well as startups so it made sense to encourage an environment where startups can flourish. Telefonica provides access to business development opportunities through its network of global affiliates that would normally be inaccessible to young companies. In return, Telefonica can tap into this innovative ecosystem to deliver disruptive solutions to the company and its customers.
There are also similarities between the growth of insurtechs and the innovation seen by startups in the banking industry.
Research by Accenture on the business models of more than 300 traditional and digital banks in 11 countries found large multinational banks need to reconsider their business models. The study indicated that traditional banks could earn an additional $518 billion per year by 2025 by implementing the business models of digital-only challengers like U.K. banks Monzo and Starling Bank. This underlines the value of startups entering a market and bringing new ways of thinking and operating to capitalize on the changing needs of customers.
The importance of startups
Startups drive innovation through necessity with their ‘small company in a hurry’ mentality and they can implement changes quickly thanks to on-demand computing and cloud storage.
Although many startups grow and fail quickly, their value is in innovation across a marketplace, which leads to better services and better value for money for customers. It can drive the adoption of new services and greater uptake of existing services. This innovation stimulates economic growth and creates wealth for investors.